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Press Release -- November 5th, 2012
Source: Broadsoft
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BroadSoft Reports Third Quarter 2012 Financial Results

GAITHERSBURG, MD -- (Marketwire) --11/05/12 --BroadSoft, Inc. (NASDAQ:BSFT, news, filings), the leading global provider of Internet protocol-based, or IP-based, communications services to the telecommunications industry, today announced financial results for the quarter endedSeptember 30, 2012.

Financial Highlights for the Third Quarter of 2012

  • Total revenue increased 13% year-over-year to $40.2 million
  • GAAP gross profit equaled 81% of total revenue; non-GAAP gross profit equaled 84% of total revenue
  • GAAP income from operations totaled $6.5 million or 16% of revenue; non-GAAP income from operations totaled $10.5 million or 26% of revenue
  • GAAP diluted EPS equaled $0.11 per common share; non-GAAP diluted EPS equaled $0.35 per common share

Results for the three months ended September 30, 2012

Total revenue rose to$40.2 millionin the third quarter of 2012, an increase of 13% compared to$35.7 millionin the third quarter of 2011.

Net income for the third quarter of 2012 was$3.1 million, or$0.11per diluted common share, compared to net income of$7.3 million, or$0.26per diluted common share in the third quarter of 2011.

On a non-GAAP basis, net income in the third quarter of 2012 was$10.0 million, or$0.35per diluted common share, compared to non-GAAP net income of$10.7 million, or$0.38per diluted common share, in the third quarter of 2011. A reconciliation of non-GAAP and GAAP results is included in the financial tables below.

Results for the nine months ended September 30, 2012

Total revenue was$119.0 millionfor the first nine months of 2012, compared to$97.5 millionfor the first nine months of 2011, reflecting year-over-year growth of 22%.

Net income for the first nine months of 2012 was$7.2 million, or$0.25per diluted common share, compared to net income of$26.8 million, or$0.96per diluted common share, for the first nine months of 2011. Results for the nine months endedSeptember 30, 2011included an income tax benefit of$9.9 million, or$0.36per diluted common share, resulting from the release of a tax valuation allowance relating to net deferred tax assets.

On a non-GAAP basis, net income for the first nine months of 2012 was$27.5 millionor$0.97per diluted common share, compared to non-GAAP net income of$23.7 million, or$0.85per diluted common share, in the first nine months of 2011. A reconciliation of non-GAAP and GAAP results is included in the financial tables below.

Management Commentary

"We remain laser-focused on executing against our strategic initiatives, which helped us deliver solid third quarter results and positions us for further growth with our customers. We continue to be excited by the growth of our addressable market as we help our customers extend their hosted voice services into a comprehensive Unified Communications offer," saidMichael Tessler, president and chief executive officer,BroadSoft. "We further solidified our innovation leadership and strategic partner position with many of our customers two weeks ago at our annual executive users' conference, BroadSoft Connections. At the event, we announced extensive new capabilities designed to address the needs of varied market segments, from mobile integration for small businesses to vertical application integration for large enterprises. These innovative enhancements were very positively received and led to strategic discussions on how we could best help our customers accelerate the adoption of their Unified Communications services."

"Revenue grew 13% year-over-year in the third quarter and 22% on a year-to-date basis. Billings, which we define as revenue plus the quarterly change in total deferred revenue, grew 45% year-over-year in the third quarter and 31% on a year-to-date basis," saidJim Tholen, chief financial officer,BroadSoft. "In addition, we also delivered strong profitability, with non-GAAP gross margin of 84% and non-GAAP operating margin of 26%. Operating cash flow was$9.7 millionduring the quarter."

Guidance

For the fourth quarter of 2012,BroadSoftanticipates revenue of$43 to $48 millioninclusive of approximately$0.8 millionin revenue from the recent Adaption asset acquisition. The Company also expects to achieve earnings on a non-GAAP basis of$0.33 to $0.48per diluted common share which includes expected dilution from the Adaption acquisition of approximately$0.02per share.

For the full year 2012,BroadSoftexpects revenue of$162 to $167 million, which includes approximately$1.4 millionin contribution from the Adaption acquisition. The Company anticipates full year 2012 earnings on a non-GAAP basis of$1.30 to $1.45per diluted common share, which includes expected dilution of approximately$0.04per share for the Adaption acquisition.

Conference Call

BroadSoftwill discuss its third quarter results and business outlook today via teleconference at 5:00 p.m. Eastern Time. To participate in the teleconference, callers can dial the toll free number 1-877-312-5517 (U.S. callers only) or 1-760-666-3772 (from outside the U.S.). The conference call can also be heard live via audio webcast at http://investors.broadsoft.com/events.cfm. To help ensure the conference begins on time, please dial in or connect via the web five minutes prior to the scheduled start time.

For those unable to participate in the live call, a recording will be available shortly after the conclusion of the call at http://investors.broadsoft.com/events.cfm and will remain available until immediately prior to our next earnings call.

BroadSofthas provided in this release, and will provide on this afternoon's teleconference, financial information that has not been prepared in accordance with generally accepted accounting principles, or GAAP.BroadSoftuses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors, as a supplement to GAAP measures, in evaluatingBroadSoft'songoing operational performance.BroadSoft'smanagement regularly uses these non-GAAP financial measures to understand and manage its business and believes these non-GAAP financial measures provide meaningful supplemental information regarding the Company's performance by excluding certain non-cash expenses, and may include additional adjustments for items that are infrequent in nature.BroadSoftbelieves the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing its financial results with other companies inBroadSoft'sindustry, many of which present similar non-GAAP financial measures to investors. A reconciliation of the non-GAAP financial measures included in this release and to be discussed on this afternoon's teleconference to the most directly comparable GAAP financial measures is set forth below.

Non-GAAP financial measures:

Non-GAAP net income and net income per share.BroadSoftdefines non-GAAP net income as net income plus stock-based compensation expense, amortization expense for acquired intangible assets, non-cash interest expense on the Company's convertible notes, and non-cash tax expense included in the GAAP tax provision.BroadSoftdefines non-GAAP income per share as non-GAAP net income divided by the weighted average shares outstanding.BroadSoftconsiders these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of certain non-cash expenses so management and investors can compareBroadSoft'score business operating results over multiple periods.

Non-GAAP gross margin, license gross margin and maintenance and services gross margin.BroadSoftdefines non-GAAP gross margin as gross margin plus stock-based compensation expense and amortization expense for acquired intangible assets.BroadSoftconsiders non-GAAP gross margin to be a useful metric for management and our investors because it excludes the effect of certain non-cash expenses so management and its investors can compareBroadSoft'ssales margins over multiple periods. WhereBroadSoftprovides further breakdown of non-GAAP gross margin between license and maintenance services, the Company adds back the stock-based compensation expense and amortization expense, as applicable, to the related gross margin.

Non-GAAP income from operations.BroadSoftdefines non-GAAP income from operations as income from operations plus stock-based compensation expense and amortization expense for acquired intangible assets.BroadSoftconsiders non-GAAP income from operations to be a useful metric for management and investors because it excludes the effect of certain non-cash expenses so management and investors can compareBroadSoft'score business operating results over multiple periods. WhereBroadSoftprovides further breakdown of non-GAAP operating expenses for sales and marketing, research and development and general and administrative, the Company deducts stock-based compensation expense included in the applicable expense item.

Billings.BroadSoftdefines billings as revenue plus the net change in our deferred revenue balance for a particular period.BroadSoftbelieves that billings is a key measure of our business activity.

With respect to our expectations under "Guidance" above, reconciliation of non-GAAP earnings per share guidance to the closest corresponding GAAP measure is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures, in particular, the measures and effects of non-cash income taxes, which are extremely difficult to project as a result of our tax status in a number of foreign jurisdictions, and stock-based compensation expense specific to equity compensation awards that are directly impacted by unpredictable fluctuations in our stock price. We expect the variability of the above charges to have a significant, and potentially unpredictable, impact on our future GAAP financial results.

The presentation of non-GAAP net income, non-GAAP net income per share, non-GAAP gross margin, non-GAAP income from operations, billings and other non-GAAP financial measures in this release and on this afternoon's teleconference is not meant to be a substitute for "net income," "net income per share," "gross margin," "income from operations" or other financial measures presented in accordance with GAAP, but rather should be evaluated in conjunction with such data.BroadSoft'sdefinition of "non-GAAP net income," "non-GAAP net income per share," "non-GAAP gross margin," "non-GAAP income from operations," "billings" and other non-GAAP financial measures may differ from similarly titled non-GAAP measures used by other companies and may differ from period to period. In reporting non-GAAP measures in the future, management may make other adjustments for expenses and gains it does not consider reflective of core operating performance in a particular period and may modify "non-GAAP net income," "non-GAAP net income per share," "non-GAAP gross margin," "non-GAAP income from operations," "billings" and such other non-GAAP measures by excluding these expenses and gains.

Forward-Looking Statements

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by their use of terms and phrases such as "anticipate," "enable," "expect," "will," "believe," "continue" and other similar terms and phrases, and such forward-looking statements include, but are not limited to, the statements regarding the Company's future financial performance set forth under the heading "Guidance." The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements, including, but not limited to: the Company's dependence on the success of BroadWorks® and on its service provider customers to sell services using its applications; claims that the Company infringes the intellectual property rights of others; the Company's dependence in large part on service providers' continued deployment of, and investment in, their IP-based networks; the Company's ability to integrate and achieve the expected benefits from its recent acquisitions, including Adaption Technologies; and the Company's ability to expand its product offerings, as well as those factors contained in the "Risk Factors" sections of the Company's Form 10-Q for the quarter endedJune 30, 2012filed with theSecurities and Exchange Commission, orSEC, onAugust 6, 2012and the Company's Form 10-K for the year endedDecember 31, 2011filed with theSEConFebruary 29, 2012, and in the Company's other filings with theSEC. All information in this release is as ofNovember 5, 2012. Except as required by law, the Company undertakes no obligation to update publicly any forward-looking statement made herein for any reason to conform the statement to actual results or changes in the Company's expectations.

About BroadSoft

BroadSoftis the leading provider of software and services that enable mobile, fixed-line and cable service providers to offer Unified Communications over their Internet Protocol networks. The Company's core communications platform enables the delivery of a range of enterprise and consumer calling, messaging and collaboration communication services, including private branch exchanges, video calling, text messaging and converged mobile and fixed-line services.

Financial Statements

The financial statements set forth below are not the complete set of the Company's financial statements for the quarter and are presented below without footnotes. Readers are encouraged to obtain and carefully review BroadSoft'sQuarterly Report on Form 10-Q for the quarter ended September 30, 2012, including all financial statements contained therein and the footnotes thereto, when it is filed with the SEC. Once filed with the SEC, the Form 10-Q may be retrieved from the SEC'swebsite at www.sec.gov or from BroadSoft's website at www.broadsoft.com.

                              BroadSoft, Inc.

                   Condensed Consolidated Balance Sheets

                                (unaudited)

                                               September 30,  December 31,

                                                    2012           2011

                                               -------------  -------------

                                                (In thousands, except share

                                                    and per share data)

Assets:

Current assets:

  Cash and cash equivalents                    $      92,209  $      94,072

  Short-term investments                              85,347         92,749

  Accounts receivable, net of allowance for

   doubtful accounts of $401 and $54 at

   September 30, 2012 and December 31, 2011,

   respectively                                       41,554         47,048

  Deferred tax assets                                  9,487         12,968

  Other current assets                                 7,541          4,435

                                               -------------  -------------

    Total current assets                             236,138        251,272

                                               -------------  -------------

Long-term assets:

  Property and equipment, net                          5,014          4,221

  Long-term investments                                5,001          5,000

  Restricted cash                                        584            959

  Intangible assets, net                              12,023          8,842

  Goodwill                                            37,280         17,276

  Other long-term assets                              12,170          3,386

                                               -------------  -------------

    Total long-term assets                            72,072         39,684

                                               -------------  -------------

      Total assets                             $     308,210  $     290,956

                                               =============  =============

Liabilities and stockholders' equity:

Current liabilities:

  Accounts payable and accrued expenses        $      13,473  $      14,999

  Notes payable and bank loans, current

   portion                                               486            891

  Deferred revenue, current portion                   41,872         55,372

                                               -------------  -------------

      Total current liabilities                       55,831         71,262

Convertible senior notes                              85,233         81,737

Notes payable and bank loans                             458            461

Deferred revenue                                      12,169          1,764

Deferred tax liabilities                               2,301          1,433

Other long-term liabilities                            1,133          1,056

                                               -------------  -------------

      Total liabilities                              157,125        157,713

                                               -------------  -------------

Stockholders' equity:

Common stock, par value $0.01 per share;

 100,000,000 shares authorized at September

 30, 2012 and December 31, 2011; 27,811,304

 and 27,106,393 shares issued and outstanding

 at September 30, 2012 and December 31, 2011,

 respectively                                            278            271

  Additional paid-in capital                         202,776        191,714

  Accumulated other comprehensive loss                (2,981)        (2,557)

  Accumulated deficit                                (48,988)       (56,185)

                                               -------------  -------------

Total stockholders' equity                           151,085        133,243

                                               -------------  -------------

Total liabilities and stockholders' equity     $     308,210  $     290,956

                                               =============  =============

                              BroadSoft, Inc.

              Condensed Consolidated Statements of Operations

                                (Unaudited)

                                     Three Months Ended  Nine Months Ended

                                       September 30,       September 30,

                                    ------------------- -------------------

                                       2012      2011      2012      2011

                                    --------- --------- --------- ---------

                                     (In thousands, except per share data)

Revenue:

  Licenses                          $  21,554 $  17,414 $  65,320 $  51,807

  Maintenance and services             18,620    18,266    53,713    45,706

                                    --------- --------- --------- ---------

    Total revenue                      40,174    35,680   119,033    97,513

Cost of revenue:

  Licenses                              1,878     1,275     6,453     3,896

  Maintenance and services              5,117     4,568    15,819    13,518

  Amortization of intangibles             730       236     1,846       726

                                    --------- --------- --------- ---------

    Total cost of revenue               7,725     6,079    24,118    18,140

                                    --------- --------- --------- ---------

Gross profit                           32,449    29,601    94,915    79,373

Operating expenses:

  Sales and marketing                  11,396     8,581    34,076    26,142

  Research and development              8,876     6,587    26,483    20,133

  General and administrative            5,701     5,269    17,395    14,151

                                    --------- --------- --------- ---------

    Total operating expenses           25,973    20,437    77,954    60,426

                                    --------- --------- --------- ---------

Income from operations                  6,476     9,164    16,961    18,947

Other expense, net:                     1,627     1,543     4,809     1,714

                                    --------- --------- --------- ---------

Income before income taxes              4,849     7,621    12,152    17,233

  Provision for (benefit from)

   income taxes                         1,709       276     4,955    (9,598)

                                    --------- --------- --------- ---------

Net income                          $   3,140 $   7,345 $   7,197 $  26,831

                                    ========= ========= ========= =========

Net income per common share

 available to BroadSoft, Inc.

 common stockholders:

  Basic                             $    0.11 $    0.27 $    0.26 $    1.01

  Diluted                           $    0.11 $    0.26 $    0.25 $    0.96

Weighted average common shares

 outstanding:

  Basic                                27,673    26,953    27,487    26,447

  Diluted                              28,385    27,935    28,293    27,839

Stock-based compensation expense

 included above:

  Cost of revenue                   $     385 $     287 $   1,276 $     564

  Sales and marketing                   1,317       466     3,845     1,215

  Research and development              1,040       506     2,940     1,263

  General and administrative              584       631     2,237     1,851

                 Summary of Consolidated Cash Flow Activity

                                (Unaudited)

                                                         Nine Months Ended

                                                           September 30,

                                                      ---------------------

                                                          2012       2011

                                                      ---------- ----------

                                                          (in thousands)

  Net cash provided by operating activities               17,928     21,887

  Net cash used in investing activities                  (19,778)  (100,869)

  Net cash (used in) provided by financing activities       (142)   117,614

                              BroadSoft, Inc.

                                  Billings

                                (Unaudited)

                                     Three Months Ended   Nine Months Ended

                                        September 30,       September 30,

                                     ------------------  ------------------

                                        2012     2011      2012      2011

                                     --------- --------  --------  --------

Beginning of period deferred revenue

 balance                             $  48,794 $ 54,379  $ 57,136  $ 59,264

End of period deferred revenue

 balance                                54,041   50,004    54,041    50,004

                                     --------- --------  --------  --------

Increase (decrease) in deferred

 revenue                                 5,247   (4,375)   (3,095)   (9,260)

Revenue                                 40,174   35,680   119,033    97,513

                                     --------- --------  --------  --------

Revenue plus net change in deferred

 revenue                                45,421   31,305   115,938    88,253

               Reconciliation of Non-GAAP Financial Measures

                                (Unaudited)

                                                Three

                          Three Months Ended    Months    Nine Months Ended

                             September 30,      Ended       September 30,

                                               June 30,

                            2012      2011       2012      2012      2011

                          --------  --------  ---------  --------  --------

                                            (In thousands)

Non-GAAP gross profit:

GAAP gross profit         $ 32,449  $ 29,601  $  32,195  $ 94,915  $ 79,373

  (percent of total

   revenue)                     81%       83%        79%       80%       81%

Plus:

  Stock-based

   compensation expense        385       287        483     1,276       564

  Amortization of

   acquired intangible

   assets                      730       236        557     1,846       726

                          --------  --------  ---------  --------  --------

Non-GAAP gross profit     $ 33,564  $ 30,124  $  33,235  $ 98,037  $ 80,663

                          ========  ========  =========  ========  ========

  (percent of total

   revenue)                     84%       84%        82%       82%       83%

GAAP license gross profit $ 18,946  $ 15,903  $  19,429  $ 57,021  $ 47,185

  (percent of related

   revenue)                     88%       91%        86%       87%       91%

Plus:

  Stock-based

   compensation expense        113       110        174       428       203

  Amortization of

   acquired intangible

   assets                      730       236        557     1,846       726

Non-GAAP license gross

 profit                   $ 19,789  $ 16,249  $  20,160  $ 59,295  $ 48,114

                          ========  ========  =========  ========  ========

  (percent of related

   revenue)                     92%       93%        90%       91%       93%

GAAP maintenance and

 services gross profit    $ 13,503  $ 13,698  $  12,766  $ 37,894  $ 32,188

  (percent of related

   revenue)                     73%       75%        71%       71%       70%

Plus:

  Stock-based

   compensation expense        272       177        309       848       361

Non-GAAP maintenance and

 services gross profit    $ 13,775  $ 13,875  $  13,075  $ 38,742  $ 32,549

                          ========  ========  =========  ========  ========

  (percent of related

   revenue)                     74%       76%        73%       72%       71%

                              BroadSoft, Inc.

         Reconciliation of Non-GAAP Financial Measures (continued)

                                (Unaudited)

                                                Three

                          Three Months Ended    Months    Nine Months Ended

                             September 30,      Ended       September 30,

                                               June 30,

                            2012      2011       2012      2012      2011

                          --------  --------  ---------  --------  --------

                                            (In thousands)

Non-GAAP income from

 operations:

GAAP income from

 operations               $  6,476  $  9,164  $   5,576  $ 16,961  $ 18,947

(percent of total

 revenue)                       16%       26%        14%       14%       19%

Plus:

Stock-based compensation

 expense                     3,326     1,890      3,781    10,298     4,893

Amortization of acquired

 intangible assets             730       236        557     1,846       726

                          --------  --------  ---------  --------  --------

Non-GAAP income from

 operations               $ 10,532  $ 11,290  $   9,914  $ 29,105  $ 24,566

                          ========  ========  =========  ========  ========

(percent of total

 revenue)                       26%       32%        24%       24%       25%

GAAP operating expense    $ 25,973  $ 20,437  $  26,619  $ 77,954  $ 60,426

Less:

Stock-based compensation

 expense                     2,941     1,603      3,298     9,022     4,329

                          --------  --------  ---------  --------  --------

Non-GAAP operating

 expense                  $ 23,032  $ 18,834  $  23,321  $ 68,932  $ 56,097

                          ========  ========  =========  ========  ========

(as percent of total

 revenue)                       57%       53%        58%       58%       58%

GAAP sales and marketing

 expense                  $ 11,396  $  8,581  $  11,608  $ 34,076  $ 26,142

Less:

Stock-based compensation

 expense                     1,317       466      1,391     3,845     1,215

                          --------  --------  ---------  --------  --------

Non-GAAP sales and

 marketing expense        $ 10,079  $  8,115  $  10,217  $ 30,231  $ 24,927

                          ========  ========  =========  ========  ========

  (as percent of total

   revenue)                     25%       23%        25%       25%       26%

GAAP research and

 development expense      $  8,876  $  6,587  $   9,131  $ 26,483  $ 20,133

Less:

  Stock-based

   compensation expense      1,040       506      1,101     2,940     1,263

                          --------  --------  ---------  --------  --------

Non-GAAP research and

 development expense      $  7,836  $  6,081  $   8,030  $ 23,543  $ 18,870

                          ========  ========  =========  ========  ========

  (as percent of total

   revenue)                     20%       17%        20%       20%       19%

GAAP general and

 administrative expense   $  5,701  $  5,269  $   5,880  $ 17,395  $ 14,151

Less:

  Stock-based

   compensation expense        584       631        806     2,237     1,851

                          --------  --------  ---------  --------  --------

Non-GAAP general and

 administrative expense   $  5,117  $  4,638  $   5,074  $ 15,158  $ 12,300

                          ========  ========  =========  ========  ========

  (as percent of total

   revenue)                     13%       13%        13%       13%       13%

                              BroadSoft, Inc.

         Reconciliation of Non-GAAP Financial Measures (continued)

                                (Unaudited)

                                                  Three

                             Three Months Ended   Months  Nine Months Ended

                                September 30,     Ended     September 30,

                                                 June 30,

                                2012     2011      2012     2012     2011

                             --------- -------- --------- -------- --------

                                  (In thousands, except per share data)

Non-GAAP net income and

 income per share:

GAAP net income              $   3,140 $  7,345 $   2,356 $  7,197 $ 26,831

Adjusted for:

  Stock-based compensation

   expense                       3,326    1,890     3,781   10,298    4,893

  Amortization of acquired

   intangible assets               730      236       557    1,846      726

  Non-cash interest expense

   on our convertible notes      1,286    1,159     1,273    3,801    1,331

  Non-cash tax provision

   (benefit)                     1,505       58     1,425    4,393  (10,082)

                             --------- -------- --------- -------- --------

Non-GAAP net income          $   9,987 $ 10,688 $   9,392 $ 27,535 $ 23,699

                             ========= ======== ========= ======== ========

GAAP net income per basic

 common share                $    0.11 $   0.27 $    0.09 $   0.26 $   1.01

Adjusted for:

  Stock-based compensation

   expense                        0.12     0.07      0.14     0.37     0.19

  Amortization of acquired

   intangible assets              0.03     0.01      0.02     0.07     0.03

  Non-cash interest expense

   on our convertible notes       0.05     0.04      0.04     0.14     0.05

  Non-cash tax provision

   (benefit)                      0.05        -      0.05     0.16    (0.38)

                             --------- -------- --------- -------- --------

Non-GAAP net income per

 basic common share          $    0.36 $   0.39 $    0.34 $   1.00 $   0.90

                             ========= ======== ========= ======== ========

GAAP net income per diluted

 common share                $    0.11 $   0.26 $    0.08 $   0.25 $   0.96

Adjusted for:

  Stock-based compensation

   expense                        0.12     0.07      0.13     0.36     0.17

  Amortization of acquired

   intangible assets              0.03     0.01      0.02     0.07     0.03

  Non-cash interest expense

   on our convertible notes       0.04     0.04      0.05     0.13     0.05

  Non-cash tax provision

   (benefit)                      0.05        -      0.05     0.16    (0.36)

                             --------- -------- --------- -------- --------

Non-GAAP net income per

 diluted common share        $    0.35 $   0.38 $    0.33 $   0.97 $   0.85

                             ========= ======== ========= ======== ========

Source:BroadSoft, Inc.

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